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QUESTION 1: The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some
QUESTION 1: The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials. By adding the processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it for use in its products. Two types of equipment are being considered and their costs/revenues are shown below: Year A B 0 ($32,000) ($27,500) $15,000 $17,000 2 $22,000 $16,500 3 $19,000 $15,000 1 The process equipment will run for 3 years. With a MARR of 8%, calculate the following: a. Calculate the Future Value at EOY3 for each option. [2 + 2 points) DO NOT CALCULATE USING THE FINANCIAL FUNCTIONS IN EXCEL. b. Calculate the IRR for each option. 1. Use linear interpolation [3 + 3 points] ii. Use the Excel RR function to determine the IRR for both the types and submit your spreadsheet electronically [2 + 2 points) c. Using incremental IRR analysis, which processing equipment should be selected? Why? [5 + 1 points]
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